Company Formations: A jurisdictional guide to setting up a business

QUESTION ONE – What are the most common structures used when international clients want to form a company in your jurisdiction? Any examples?

In Russia, the following are the most common structures to start your business:

Limited Liability Company (OOO)

This is the most popular structure, a separate legal entity. It requires a minimum capital of RUB 10,000 and takes 4-8 weeks to establish. Funds cannot be trans­ferred to the parent company’s accounts by a simple bank transfer, as documents are required (e.g. contracts, certificates of acceptance). Payments made between an OOO and its Russian counterparties are not subject to currency control from the bank. Information about the owners is publicly available.

Joint Stock Company (AO)

This is a separate legal entity, which gives more control to the Central Bank of Russia over various corporate procedures and shares sales (as compared to the OOO). It requires a minimum capital of RUB 10,000 – 100,000 and takes 8-12 weeks to establish. Funds cannot be transferred to the parent company’s accounts by a simple bank transfer, as documents are required (e.g. contracts, certificates of acceptance). Payments made between an OOO and its Russian counterparties are not subject to currency control from the bank. Information about the owners is closed to third parties.

Branch of a foreign company

This is a part of the existing parent company. A branch will normally take four months to register (from the time you start collecting documents until accredita­tion of the branch). A branch can be easily financed by the parent company, but payments made between a branch and its Russian counterparties are subject to currency control from the bank.

In Russian law, there is no trust concept, as in English law. However, there is the notion of fiduciary management, but it does not imply the transfer of ownership (property) rights to management as the English trust concept does.

QUESTION TWO – Please detail some of the favourable and unfavourable legislation that businesses considering establishing a presence in your jurisdiction should be aware of? How can you help them to streamline the process?

Company registration aspects. The registration process takes three working days after submitting the package of documents, which must be notarized and apostilled.

Bank account aspects. Bank accounts cannot be opened simultaneously with the company’s establishment. Some of the necessary documents are issued by the registration authorities on the day of registration, and only after that can they be submitted to the bank. The usual time for account opening after submission of the documents package is 5-7 working days.

Bank account authorisation cannot be changed concurrently with a director change, so, in practice, the previous director processes payments for some time without having any powers formally, or a person intended to become the future director, is officially authorised with a power of attorney to process bank payments before becoming a director.

Labour and migration aspects. A foreigner cannot be appointed as a director in an established company at the beginning of its operation, because they require a work permit from an established company. Therefore, for the initial period of the company’s activity, a Russian citizen is usually appointed as a director.

An employer may terminate labour agreements only upon conditions provided by law (by a simple resolution of shareholders – only with the Director). ‘Highly Qualified Specialist’ status for foreign employees gives a minimum salary of RUB 167,000 per month and 13 per cent personal income tax, plus a three-year working visa with no stay limit and no obligation to register in Russia within 90 days of arrival.

Localisation requirements. Made in Russia requirements apply to a wide range of industries: even if you set up your production in Russia, that does not automatically mean you have localised your products. Non-compliance results in restrictions on or prohibition of participation in public procurements.

Tax and currency control aspects. Special Economic Zones have certain benefits and incentives, including:

  • cost-saving for investors of up to 30 per cent
  • free customs zone and favourable administrative procedures
  • tax preferences and guarantees against unfavourable legislation changes

Conditions in Advanced Development Zones (ADZs) and the ‘free’ port of Vladiv­ostok: income tax is 0-5 per cent during the first 5 years, land tax is 0 per cent during the first 3 years, duty and tax-free importation are provided, storage and use of foreign goods within ADZs, etc.

Incentives related to certain activities (e.g. R&D and IT) imply lower payments to social funds, including pension and medical insurance, which is paid for by the employer as well as profit tax reductions. Double tax treaty reductions include:

  • 20 per cent withholding tax on royalties and interest, depending on the double tax treaty a reduction to 0 per cent is possible
  • 15 per cent dividend tax, depending on the double tax treaty a reduction to 5 per cent is possible.

QUESTION THREE – What due diligence is required to be undertaken by company formations agents under anti-money laundering laws in your jurisdiction?

At the company launching stage, only banks are obliged to check anti-money laundering aspects. Russian law requires companies to disclose information on:

  • beneficial owners – individuals who ultimately, directly or indirectly (through third parties), own (have a prevailing interest of more than 25 per cent in its equity) a company or can control its actions
  • participants directly possessing more than 25 per cent in the equity

When opening a bank account for your Russian company, you will be required to provide the relevant information and confirmation documents by your bank, includ­ing the corporate scheme of the group of companies, official extracts from the companies register, and lists of shareholders with regard to the foreign companies of the group having 25 per cent or more in equity at each level.

After the accounts are opened, the bank will ask you to update the information about the beneficial owners once a year within the KYC procedure. If the company fails to provide such information, the bank has a right to block transactions and the online banking system.